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Governor Newsom has signed Senate Bill 1242 into law. This bill is the Senate Insurance Committee’s biannual omnibus bill, which includes several changes that are non-controversial, technical, or otherwise classified as code cleanup.

Prior to passage of this law, an insurer that reasonably believes or knows that a fraudulent claim is being made was required to send a form and additional information about the fraudulent claim to the Fraud Division of the Department of Insurance within 60 days after determination by the insurer that the claim appears to be a fraudulent claim.

The new law requires an insurer to send that form and information within 60 days after it that has determined, after the completion of an investigation, that it reasonably suspects or knows an act of insurance fraud may have occurred or might be occurring. The changes to this law seem only to set timing for filing information with the DOI rather than any other substantive change to the obligations of the claim administrator. The language was added to section 1872.4 of the Insurance Code.

Several provisions, taken together, are intended to help insurance agents and brokers identify, and help CDI crack down against, insured insurance fraud.

These include a requirement that agents and brokers who reasonably suspect or know a fraudulent application is being made to report that fact to CDI’s fraud division (if the application has not yet been submitted to an insurance company) or to an insurer’s special investigative unit (if the application has been submitted to the insurance company). This language appears in section 1872.41 of the Insurance Code.

The new law clarifies that these reports do not subject the agent or broker to civil liability, as long as the agent or broker is acting in good faith; and a clarification that an insurer should complete its special investigative unit investigation into suspected fraud before reporting that fraud to CDI.

Effective March 1, 2023, requires the twelve-hour ethics course that is required in connection with the pre-licensing education of specified new license applicants and the three-hour ethics course that is required as a condition of license renewal to each include one hour of study on insurance fraud. These provisions were added to section 1749 of the Insurance Code.

In essence, the new law will bring insurance and agents up to speed in terms of fraud by the insured during the policy application process. In workers’ compensation this is typically premium fraud where the insured incorrectly reports the number or classification of employees to reduce the premium to be paid.

Existing law requires an insurer to include a statement indicating that it is a crime to present false and fraudulent information to obtain or amend insurance coverage on a form it uses for an application, policy changes, or making a claim in connection with an insurance application, contract, or provision of contract for liability insurance, or on a rider attached to that form.

The new law requires that statement to appear on the form, exclusive of schedules attached to the form, or an endorsement separate from the form, if used in connection with an insurance application, contract, or provision of contract. The bill would also make conforming changes.

During the legislative process during the year, the record does not reflect opposition to the bill.